July 18, 2024

What Is a Mortgage Pre-Approval?

In a recent survey, more than 100 million Americans claimed they felt better in 2020 about buying a home than in previous years, and close to one-third of those planned to buy a home within one year.

Homeownership seems to be the plan for many of us, so knowing how it all fits gives us an edge. It may seem confusing, so seeing how it comes together will help get you in your dream home. Keep reading to understand how the mortgage loan approval process works.

Mortgage Loan Approval Process

Most real estate companies and banks will recommend that you get a pre-approval for a mortgage. That means that a loan officer or other bank representative has checked your credit, finances, debt, and income. With this information, they determine how much money you can borrow, what your interest rate will be, and what your monthly payments will be.

For many people looking to buy a home, this is the first step in the loan approval process for a mortgage. This gives you a snapshot of what you can afford and helps you know which houses you should check out. It reduces the time spent looking at homes that may not be within your budget.

These days you do not have to go to the local bank for a lengthy discussion. Now, mortgage approval can get done over the phone or online.

Once you get a pre-approval, the lender will give you a letter showing how much you could borrow. It shows sellers and realtors that you are a serious buyer and that a bank has agreed to work with you. That lets the sellers know they aren’t spending their time with someone who can’t get approval for a mortgage.

Why You Want a Pre-Approval

Although getting a mortgage loan pre-approval does not guarantee you will get a mortgage, it does show you are serious about wanting to buy a home. You are showing your income and ability to make payments if approved. The loan approval process for a mortgage may go faster because you have already submitted most of the paperwork the lender requires.

When you know what you can afford, it makes looking for the right home easy. You know the lists of houses you want to view. You won’t waste time going to the ones that don’t fit within your budget.

At the least, it will show a seller that a lender is willing to work with you. It means your finances are in order and could separate you from other potential buyers.

How Long Does It Take?

The mortgage loan approval process can take several months. Having a pre-approval could shorten that time if you have submitted the documents needed.

A lender will need proof of income, which could include paychecks and tax forms. You may have to show that you have the money to make a down payment by sending in a bank statement.

A pre-approval can get done the same day you apply for it. It could help get you started on the mortgage process. Check out our site for more real estate tips!